VF Corp Earnings Up Y/Y, Misses Estimates - Analyst Blog
) fourth quarter 2013 adjusted earnings came in at 82 cents a
share, up 6% year-over-year. However, it missed the Zacks
Consensus Estimate of 84 cents. GAAP earnings came in at 82 cents
per share, up 12% year-over-year.
Results were driven mainly by The North Face and Vans brands, which performed exceptionally well. Also robust performances by the international and direct-to-consumer operations contributed to the company's growth.
Quarter in Detail
VF Corp.'s total revenue of $3,258.7 million grew nearly 8% year over year on the back of strong growth in Outdoor & Action Sports, international as well as direct-to-consumer revenues. The company's Imagewear segment also delivered high single-digit growth. However, reported sales fell short of the Zacks Consensus Estimate of $3358.0 million.
Gross margin in the quarter expanded 80 basis points (bps) to 48.2% from 47.4% in the comparable year-ago quarter. This could be attributed to an improvement in higher margin businesses and lower product costs, coupled with an enhancement in almost every coalition.
Adjusted operating income rose 11% to $509.0 million, on a year-over-year basis. Moreover, adjusted operating margin expanded 40 bps to 15.5% during the quarter.
Full Year 2013
Excluding the effects of restructuring expenses related to the company's Timberland acquisition, earnings per share for the full year surged 13% to $2.73, falling short of the Zacks Consensus Estimate of $2.75. GAAP earnings came in at $2.71 per share, up 12% year-over-year.
Revenues for 2013 witnessed a rise of 5% to $11.4 billion and came in line with the Zacks Consensus Estimate.
Revenue at Outdoor & Action Sports rose 12% from the year-ago quarter to $1919.3 million, driven by stable growth in international and U.S. markets and direct-to-consumer and wholesale networks.
The increased revenues could be attributed to a respective 12%, 14% and 13% increase in sales in North Face, Vans and Timberland brands. Segment operating income increased 11% year over year to $358.0 million, while operating margin dropped 10 bps to 18.7%. VF Corp. expects revenues of this segment to grow at a low double-digit rate in 2014.
Jeanswear revenues remained flat year over year at $734.1 million. Though sales at Wrangler brand grew 5%, the Lee brand saw a decline of 6% during the quarter. Segment operating income increased 2% to $134.0 million while operating margin expanded 40 bps to 18.3% in the quarter. VF Corp. expects revenues of this segment to grow at a low single-digit rate in 2014.
Imagewear revenues increased 9% year over year to $286.9 million on the back of a late contract renewal. However, operating income increased 31% to $45.0 million and operating margin at the segment enhanced 250 bps to 15.6%, impacted by a significant gross margin improvement. VF Corp. expects revenues of this segment to grow at a low single-digit rate in 2014.
Revenues at Sportswear increased considerably by 14% to $207.8 million owing to robust performances by the Nautica and Kipling brands, whose sales grew 11% and 33%, respectively. Segment operating income increased 11% year over year to $36.0 million. Operating margin came in at 17.2%, contracting 50 bps year over year. VF Corp. expects revenues of this segment to grow at a high single-digit rate in 2014.
Contemporary Brands' revenues rose marginally by 1.0% to $107.7 million, depicting the challenges faced by the premium denim business environment. Operating income and margin during the quarter remained flat at $9.0 million and 8.3%, respectively. VF Corp. expects revenues of this segment to grow at a mid-single digit rate in 2014.
The company's International revenues escalated 11% year over year. The growth was largely driven by strong performances of the biggest brands in Americas, Asia, China and Europe. International revenues now represent 38% of V.F.Corp.'s full year total revenue. VF Corp. expects revenues of this segment to grow nearly 10% in 2014 and continue to account for 38% of the company's total revenues.
Direct-to-Consumer revenues advanced 14% year over year, driven by the addition of 53 new stores bringing the store count to 1,246. Performance by The North Face, Vans, Nautica and Kipling brands also contributed towards this surge. Direct-to-consumer revenues constitute 22% of VF Corp.'s full-year revenues, higher than 21% previously. VF Corp expects revenues of this segment to grow at a high-teen rate in 2014 and represent 26% of the company's total revenue.
VF Corp. ended the year with cash and cash equivalents of $776.4 million and long-term debt of $1,426.9 million. The company's shareholders equity came in at $6,077.0 million at the end of full year 2013.
Moreover, during the year, the company generated cash flow from operations worth $1,506.4 million and returned $700 million to its stockholders in the form of share buybacks and dividends, in spite of repaying its debt worth $400 million and spending $100 million on its pension plan. Inventories improved 3%, indicating the company's emphasis on its operational efficacy.
Going forward in 2014, VF Corp expects to generate cash flow from operations of over $1.7 billion. Also, it plans on returning $1 billion to its shareholders, including share buybacks worth $700 million. The company anticipates capital expenditure of $270 million in 2014.
During the quarter, management announced a quarterly dividend of 26.25 cents, to be paid to stockholders of record as of Mar 10, 2014, on Mar 20, 2014.
During the quarter the company's board authorized 50 million more shares, under its buyback program. Together with the remaining shares from its previous authorization, the company presently has 53 million shares under its share repurchase program.
The company seems confident about 2014, mainly on the back of its strong brand portfolio. For 2014, it envisions a 7-8% improvement in revenues, considering favorable growth in all its coalitions. Further, the company expects gross margin to expand 90 bps to 49% and operating margin to improve 60 bps to 15%.
VF Corp. projects adjusted earnings for 2014 to rise 11-13% year over year and lie in a band of $3.00-$3.05 per share. The Zacks Consensus Estimate stands at $3.10.
Other Stocks to Consider
This North Carolina-based retailer currently holds a Zacks Rank #3 (Hold). However, other better-ranked stocks in the textile-apparel space include Hanesbrands Inc. ( HBI ), Michael Kors Holdings Ltd. ( KORS ), and Columbia Sportswear Co. ( COLM ). While Hanesbrands and Michael Kors carry a Zacks Rank #1 (Strong Buy), Columbia Sportswear holds a Zacks Rank #2 (Buy).
COLUMBIA SPORTS (COLM): Free Stock Analysis Report
HANESBRANDS INC (HBI): Free Stock Analysis Report
MICHAEL KORS (KORS): Free Stock Analysis Report
V F CORP (VFC): Free Stock Analysis Report
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